NBN model locked in

The Abbott government's pared-back broadband plan is three times more cost effective than Labor's ambitious scheme and would leave Australians $16 billion better off, according to the first independent cost-benefit analysis of the national broadband network.

In a scathing verdict on the Rudd and Gillard governments' plan to introduce fibre directly to 93 per cent of premises, the cost benefit analysis finds the policy is so expensive it would barely leave the community any better off in net terms than if broadband investment remained frozen at present levels.

The much-anticipated report finds households and businesses will benefit from quicker downloads but the much-vaunted societal benefits of fast broadband – such as improvements to health and education services – will probably be extremely limited.

Communications Minister Malcolm Turnbull. Photo: Glenn Hunt

The cost benefit analysis panel, led by former Victorian Treasury head Michael Vertigan, modelled the estimated costs and benefits of expanded broadband access from 2015 to 2040.

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Communications Minister Malcolm Turnbull, who commissioned the analysis, will use the findings to justify his decision to pursue a "multi-technology mix" broadband network using a combination of fibre to the premises, fibre to the node, hybrid-fibre coaxial, satellite and wireless services.

Mr Turnbull regularly attacked Labor for failing to commission a cost-benefit analysis before launching the national broadband network, the biggest infrastructure project in Australia's history.

The report finds the multi-technology mix model outperforms a fibre to the premises plan in net economic benefits in 98 per cent of scenarios.

A multi-technology mix NBN would cost $24.9 billion to launch from 2015 compared with $35.3 billion for fibre to the premises (FTTP), the report finds.

A multi-technology mix would deliver download and upload speeds of 20-100 megabits a second, while FTTP would deliver speeds above 100Mbps.

The report finds the most cost-effective option would be an unsubsidised launch in which the free market delivers high-speed broadband to 93 per cent of homes. This would have a net economic benefit of $24 billion, but would leave 7 per cent of premises in regional and rural areas without fast broadband.

Providing fast broadband to the bush through wireless and satellite services – as envisaged under both Labor and the Coalition's plans – will cost nearly $5 billion but produce only $600 million in economic benefits.

This suggests an alternative model for a government committed to fast broadband for all Australians at a low cost: subsidising the introduction to the bush while leaving private providers to serve metropolitan areas.

Compared with the unsubsidised launch scenario, the multi-technology mix model has a net cost of $6 billion ($620 a household) and fibre to the premises has a net cost of $22 billion ($2220 a household).

Australians would be only $2 billion better off, in net terms, than if there was no further launch of broadband under a fibre to the premises model. They would be $18 billion better off under a multi-technology mix.

The report finds a multi-technology mix is more "future proof" because it can be upgraded to fibre to the premises later if demand for fast broadband booms.

"The [multi-technology mix] scenario leaves open more options for the future because it avoids high up-front costs while still allowing the capture of benefits if, and when, they emerge," the report finds.

The cost benefit analysis finds most of the benefits of fast broadband – most notably video downloads – will accrue to private users within households and businesses. By contrast, hospitals and schools require relatively low bandwidth to deliver services.

As well as Mr Vertigan, the expert panel members were economist Henry Ergas, former Australian Communications Authority chairman Tony Shaw and former eBay Australia managing director Alison Deans.

Mr Vertigan said the findings of his report show that cost benefit analyses should be mandatory before construction begins on major public infrastructure projects.

Labor communications spokesman Jason Clare said the cost-benefit analysis was "tainted" by the involvement of figures such as longstanding NBN critic Henry Ergas.

"It's hard to take the report seriously when three weeks before the last election Malcolm Turnbull said he would get this report done by the government body Infrastructure Australia and instead what he has done is got some of the most vociferous critics of the NBN, as well as former staff, to write this report," he said.

Mr Clare said the government had a "myopic" view that fast broadband was just about video games.

This is about setting us and Australia up for the future. That is why Japan, South Korea and China and New Zealand are doing it and even in Indonesia."

401 comments

Did they measure the economic benefit to Murdoch?

Commenter

anon

Date and time

August 27, 2014, 4:41AM

@anon. Absolutely. The reported figures are the cost benefit analysis to Murdoch. Not to Australia. If they were looking for a proper cost benefit analysis without bias, they would have found that Labors NBN of FTTH was the better option. Why else did you thing that this cost benefit analysis was carefully carried out by Liberal party policy supporting individuals instead of infrastructure Australia?

Commenter

Dy4me

Location

Syd

Date and time

August 27, 2014, 5:51AM

Malcolm is turning into the type of folk with whom he associates. Today I heard him saying Labor had no alternatives to the LNP budget. I recall before the last election, many of the budget measures we have been attacked with were not mentioned to the public, and who won the election anyway. It's not Labors job to be offering new policy, just their job, according to the words of Abbott in opposition, to oppose.

Commenter

Tin

Date and time

August 27, 2014, 5:53AM

Strange comment anon. This report further damages Labor’s reputation on many fronts and shows what a white elephant the NBN was.

Firstly this is just another though bubble, following pink batts and the BER where a nominally good idea exploded into a black hole of mismanagement, overspending and under delivering.

Secondly is the cost per household - $2,220. How that amount could possibly be justified for a pipe to the home is unthinkable, especially when Labor are complaining about the federal budget.

Thirdly the cost-benefit, or lack thereof. It was obvious from day 1 that the difference between 25Mbps and 100Mbps was irrelevant for most Australians. Many businesses too. But in the fog of recent access to the imagined limitless credit card, off went Conroy and Rudd and took the NBN from $4.7 billion to $37 billion overnight.

Fourthly – as the report finds, in urban areas the telcos are more than willing to provide faster broadband to those who want it and will pay a premium. Not to mention technology gains that render fixed wire services less important.

Lastly – the sneakiness, the reports never made public. It was obvious that Conroy was hiding something, and here is some of it.

How much have these Labor though bubbles cost the budget and the national economy, in opportunity cost ? And how can we ensure it never happens again ?

Commenter

Hacka

Location

Canberra

Date and time

August 27, 2014, 5:55AM

G'day anon - thank you, a wry comment there.Thank you Matthew Knott and Peter Martin - an interesting piece. This cost analysis report will provoke a range of comments; it is possible that some people will simply find fault with the report - rather than question their own preconceived position and philosophical perspective; no surprises there - it's the 'Human Condition'. I assume most of us would agree the SMH does not intend to be a monoculture - a place of philosophical and political purity providing succour to just one side of politics.If it happens to publish a piece that is contrary to our nurtured prejudices and political allegiances, do we reject it - or actually reassess our thoughts on the matter?At the least, people could grudgingly accept this report (uncomfortable with it as they may be) - without the questionable defence of simply attacking it (and ignoring any possible worth). At times, we see vitriolic and dogmatic attacks on any unwanted or alternative opinion pieces; these attacks are of the genre ‘you are either for us or against us’ – and mimic the 'black and white' certainty and exclusivity of religious (and political) zealotry and fanaticism (there is but one 'truth'); ahh, to have the comfort of such certainty.Perhaps it will be possible for the NBN advocates of the Conroy option to acknowledge that the Turnbull option has turned out to be reasonable - this would show a generosity of spirit and there is no loss of face in doing so (in fact, quite the contrary).

Commenter

Howe Synnott

Location

Sydney

Date and time

August 27, 2014, 6:10AM

I've been on 1 Mbps for the last 5 years.

Just get on with it. I would prefer the Labor NBN, but I don't want to wait 20 years to get it.

Commenter

gobsmack

Date and time

August 27, 2014, 6:12AM

At a high level the majority of cost savings come from running fibre to the node, rather than fibre up to each premise. Have a look at your IPAD, phones and computers. How many are connect to your network via Fibre? It is used in datacentres and with specialised equipment. Most people would not even know what a fibre connection looks like. Most of your devices now and in the future are Wifi. So what would be the point of running the fibre up to your house?. From there you will convert to copper or wireless anyway!

Commenter

MadOne

Location

Melbourne

Date and time

August 27, 2014, 6:15AM

Apples and Oranges. Labor delivered the NBN to the house, the LNP deliver it to the street and the public will have to pick up the cost of getting it to the house, up to $5000 per house so in reality the LNP plan will cost far more than the Labor plan to achieve the same outcome but as with all things Coalition, it will discriminate against the poorer Australians.

Commenter

Kevin

Location

Wentworth Falls

Date and time

August 27, 2014, 6:29AM

This apparent disdain of streaming movies has a hidden agenda - it would kill Murdoch's pay TV, and commercial TV.

Once people are able to control their TV by downloading, the LNP loses its main propaganda forum - the nightly news, and election advertising.

Toney's lies and his three word slogans would have no audience

Commenter

Axis

Date and time

August 27, 2014, 6:34AM

Look, I'm a bit simple so you bright guys from team Australia will have to help me out....

$24.9 billion for FTTN. $35.3billion for FTTH

Thereore FTTN supposedly costs 70% of the FTTH but the actual works program to get the FTTN is only 30% of what FTTH is. There is no cost benefit there!

FTTN will not work properly.It will be slow.It will have high considerably higher maintainence costsThe copper needs to be fixed everywhere which will make the FTTN more expensive in the long run than the total cost of the FTTH.It will cost double the amount of $24.9 billion for FTTN to upgrade it to FTTH later on.It will not be future proof and will have to be upgraded in the near future.Leave the network how it is now as the FTTN solution is a politicians dream but a complete waste of tax payers money